Corporate FDs offer up to 9.1% interest: Should you choose them over bank fixed deposits?

Fixed deposits (FDs) have long been one of the most trusted investment options for Indian households, offering predictable returns and capital protection. While bank fixed deposits continue to dominate the savings landscape, corporate or company fixed deposits (FDs) have gained popularity in recent years because they typically offer higher interest rates.

Unlike bank FDs, corporate FDs are issued by non-banking financial companies (NBFCs), housing finance companies (HFCs) and other financial institutions. Investors deposit a lump sum for a fixed tenure and earn interest at a predetermined rate. Maturities generally range from a few months to several years.

The biggest attraction is the higher return. Corporate FDs can offer interest rates that are 1-3 percentage points higher than comparable bank FDs, making them attractive to investors seeking better yields.

Company	Credit Rating	Maximum Interest Rate (p.a.)
Bajaj Finance	CRISIL FAAA/Stable, ICRA MAAA/Stable	6.95%
Mahindra Finance	CRISIL FAAA	7.00%
PNB Housing Finance	CRISIL FAAA	6.90%
LIC Housing Finance	CRISIL FAAA	6.90%
Housing and Urban Development Corporation (HUDCO)	ICRA AAA	7.25%
Sundaram Finance	CRISIL FAAA	7.00%
Muthoot Capital	CRISIL FAAA	9.10%

 

Who should consider corporate FDs?

Corporate FDs can be suitable for investors with short- to medium-term financial goals, such as planning an overseas vacation, funding a major purchase or parking surplus funds for a few years. They may also appeal to conservative investors looking to earn higher returns than bank deposits without investing in market-linked instruments.

MUST READ: BT Explainer: SEBI proposes MF-only PMS framework: ₹25-lakh entry, 2.5% fee cap, simpler rules

Understand the risks

The higher returns offered by corporate FDs come with additional risk. Unlike bank deposits, corporate FDs are not covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures eligible bank deposits up to ₹5 lakh per depositor per bank.

Before investing, it is important to evaluate the financial strength of the issuing company and its credit rating. Experts generally recommend investing only in companies with AAA or equivalent ratings, as these indicate the highest level of safety for timely payment of interest and repayment of principal. Lower-rated deposits carry a higher degree of credit risk.

MUST READ: MF investment: Large & midcap funds dump banks, pile into metal stocks in June; Vedanta Aluminium, Sterlite among top bets

Why investors choose company FDs

Besides offering higher interest rates, many corporate FDs provide flexible interest payout options, allowing investors to receive interest monthly, quarterly, annually or at maturity. Some issuers also offer relatively shorter lock-in periods than traditional bank deposits.

Like bank FDs, several corporate FDs can also be used as collateral for loans in case of emergencies. Depending on the issuer's policy, investors may be able to borrow up to 75% of the deposit amount.

For investors willing to accept a slightly higher level of risk in exchange for better returns, highly rated corporate fixed deposits can be a useful addition to a diversified fixed-income portfolio. However, they should not be viewed as a complete substitute for bank FDs, given the absence of deposit insurance.